Happy third birthday, child trust funds! The Government introduced the scheme on April 6 2005 to ensure children have savings at age 18 and raise awareness about personal finance.
It has since issued 3.4m vouchers, for which almost a third of children qualify, according to child trust fund (CTF) provider The Children's Mutual.
However, many parents have failed to give their children the leg-up, and at a time of increasing worry about the state of the economy. This week alone provider First Direct has decided to close its doors to new customers and Bank of England figures have shown a 13-year slump in lending.
Data from HM Revenue and Customs (HMRC) shows recipients failed to invest 30% of vouchers issued at the end of 2006, which expired in the fourth quarter of 2007. The figure represents a 6% rise on unused vouchers issued in the first six months of the scheme. A total of 750,000 vouchers had expired without someone voluntarily opening an account by the end of 2007.
A spokesman for F&C Investments says: "This suggests that vouchers which are collectively worth literally millions of pounds have either been chucked in the bin or left languishing in drawers or stuffed behind the sofa.”
However, the Government will automatically open an account for a child if its parents have failed to invest the voucher. The Government spreads the growing pool of revenue allocated accounts across a subset of the total universe of CTF providers and focuses it entirely on stakeholder fund options.
F&C says: "The announcement in the Budget that in future it will no longer be necessary to submit a physical voucher may help improve things. However, the pattern in the data suggests that awareness has subsided a little since the initial noise and government promotion at the inception of the CTF.
“Education and awareness is paramount and in this respect both Government and providers have an important role to play.”
Opening a CTF could give future first-time buyers much-needed help unavailable to the rest of us. The Children’s Mutual says families would have needed to save just £40 a month for 18 years to give their child enough for the average house deposit, £17,500, and £96 for the average cost of university, £40,000, had the Government introduced the scheme in 1990.
Michelle Slade, an analyst at Moneyfacts, says: “The bank of mum and dad has become a well known phrase over recent years as many children rely more and more on their parents to help them get on the property ladder.
"Recent events have shown that in order to get the cheapest mortgage deal you need to have a decent sized deposit. Is there a better gift to give your child at 18 than a nest egg to help them buy their first home?”
A report from the mutual also suggests teenagers have a much more responsible attitude to money than parents think. A total of 42% of parents think their children would blow a cash lump sum on material goods but 57% of children say they would save £20,000 if given the opportunity.
David White, chief executive of The Children’s Mutual, says: “You’ve got to give credit to our teenagers. Their parents were brought up in an environment that was all about borrowing and spending but this generation of young people has realised that saving now and spending later is a better approach.”
As White says, with the papers full of the credit crunch, baby bonds have never been so relevant.
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